Dividends and diversification are effective life preservers in choppy market seas, said one global equity strategist.
After June’s Brexit referendum touched off tumult in financial markets, equity investors watched as stock prices plunged downward over the course of a few business days, then recovered almost as quickly.
Dividend investors, on the other hand, continued to be paid for staying put -- but they were no less nervous, said Jane Shoemake, investment director, global equity income at Chicago-based Henderson Global Investors.
“Clients are understandably nervous about what’s going on in the U.K. and the world,” said Shoemake, who is based in the U.K. “There’s a huge concentration of stocks paying dividends in the U.K.”
In a Thursday webcast, Shoemake discussed Brexit’s impact on Henderson’s Global Equity Income Fund, with nearly $4 billion AUM, is a dividend-seeking, actively managed mutual fund.
Despite the U.K.’s status as a dividend destination -- Shoemake said U.K. stocks currently yield around 3.7 percent in dividends, and the Equity Income Fund’s 15 percent exposure to British stocks, -- Brexit had a minimal effect on Henderson’s strategy.
“What we have seen is a real polarity in the market, any stock that has had dollar earnings, like many consumer staples, has performed very strongly,” Shoemake said. “Those that are domestically exposed within the U.K. have performed poorly. Only two stocks were directly hit by the Brexit, the rest of the portfolio has a very international flavor to it and has benefited from the Sterling’s weakness.”
Shoemake said that as long as returns are being counted in dollars, dividend investors thus far have seen very little negative impact from Brexit.
Dividends have accounted for two-thirds of total equity returns over time, said Shoemake, noting that the MSCI World High Dividend Yield Index has outpeformed the MSCI All World Index when equity income is taken into consideration.
Henderson’s dividend strategy helps stabilize returns during periods of volatility, said Shoemake, but taking a global approach also helps to minimize concentration risk within portfolios.